July 3, 2007

Working in a Market Controlled by Private Capital Consolidation & Leverage

Why it sucks to be a laborer in the US

The ascendance and dominance of capital vs. labor. Add a billion or so potential workers to the global labor force, blend in a technology S curve acceleration, combine these with deregulation, lower taxes, and free trade, and you have a recipe for accelerating returns to capital and diminishing returns to labor.

More people competing for the same capital will drive down wages. Yet another reason to go out and work for yourself...after the first year or two, if you have no debt and leave meagerly, you have far greater stability than any employer can provide.

And the capital is getting leveraged far more aggressively:

The abundant liquidity of today’s financial marketplace may be another way of describing the ability of private agents – be they hedge funds, private equity, or simply old-fashioned banks – to create credit on their own given satisfactory reserve levels which are now more than ample. Unwillingness to employ increased margin requirements by the Fed during the NASDAQ bubble, and near 0% margin downpayments accepted by mortgage bankers during the housing bubble, give evidence to the diminishing influence of CBs and the growing influence of private agents in the credit creation process. Obviously the ultimate cost of money as determined by CBs is critical in reining in unlimited credit creation, but if the price to Wall Street is far less onerous than the cost to Main Street, there may be limits as to how far CBs can raise rates and therefore control inflation

Many of those leveraged bets are simply interested in quick flips...which means a willingness to do things like destroying the longterm value of an asset if it gives the perception of greater short term value...which will make labor markets even less stable.

Link via John K.

Posted at July 3, 2007 6:29 PM
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